The Production of and Market for New Physicians' Skill

NBER Working Paper No. 18678Issued in January 2013NBER Program(s): HCLS

Our understanding of the determinants of physician skill and the extent to which skill is valued in the marketplace is superficial. Using a large, detailed panel of new obstetricians, we find that, even though physicians' maternal complication rates improve steadily with years of practice, initial skill (as measured by performance in a physician's first year of practice) explains most of the variation in physician performance over time. At the same time, we find that the trajectories of new physicians' delivery volume develop in a way partially consistent with Bayesian learning about physician quality. In particular, as physicians gain experience, their volume becomes increasingly sensitive to the information in their accumulated prior.